Jobs data key for rates: Timbrell

Australia’s labour market will be watched closely by the Reserve Bank of Australia as it considers its next policy move, according to a senior ANZ economist, after the central bank cut rates for the first time since November 2020.

Speaking on the ANZ 5 in 5 podcast, ANZ Senior Economist Adelaide Timbrell said labour market data would be critical to the RBA’s future thinking, particularly when it comes to the outlook for consumer prices.

"ANZ Research still forecasts that the next rate cut will occur in August,” she said. “But the coming labour market outcomes, as well as wage growth, will be really important for the Reserve Bank as they continue to evolve their analysis of how the labour market is impacting inflation.

"On the one hand, [the bank has] acknowledged that the tighter labour market has not led to as much inflation risk as they thought. But on the other hand, they're also really looking at the labour market potentially as a signal of economic strength.”

ANZ Research expects the Australian unemployment rate to peak at 4.2 per cent, which aligns to the RBA’s updated forecast. The RBA had previously expected a peak of 4.5 per cent.

“If that is a signal that the economy is stronger than we think, then that for the Reserve Bank is a risk that reinflation could occur," Timbrell said.

Tightness

Timbrell said the RBA noted the tightening in the labour market, particularly through late 2024.

"They talk about the labour market being a key factor as to why they now think that the end of 2026 trimmed mean inflation forecast will be 2.7 per cent instead of 2.5 per cent,” she said.

“And when they put out the judgments to their forecast and the risks to their forecast, the labour market appears again and again."

The 25-basis point cut brought the RBA's cash rate to 4.10 per cent, the first cut since the end of 2020 and the first rate movement since November 2023.

In commentary surrounding the decision, Governor Michelle Bullock was hawkish on the timing of potential further cuts, which to Timbrell seemed “weighted to not giving people the sense that another lot of rate cuts are coming through”. 

“There was some commentary around market pricing of a few more rate cuts over the next 12 to 18 months being too confident and the Reserve Bank board being very cautious about the outlook," she said. 

Timbrell said while global trade uncertainty was mentioned by the RBA, it seemed to take a backseat to domestic factors for this decision.

“[The RBA] also didn't put a lot of the global trade uncertainty into their domestic forecast, but this seemed to be because of the quickly evolving landscape," she said. "Meaning that the outcomes could really be in such a wide range that they didn't feel confident enough to impact their forecast either way."